The International Monetary Fund is increasingly alarmed by signs that market liquidity is drying up and may trigger an even more violent global sell-off if investors rush for the exits at the same time.
Zhu Min, the IMF's deputy director, said the sharemarket rout of the past three weeks was just a foretaste of what might happen as the US Federal Reserve continues to raise interest rates this year, pushing up borrowing costs across the planet.
He warned that investors and wealth funds have clustered together in crowded positions. Asset markets have become dangerously aligned, amplifying the effects of any shift in mood.
"The key issue is that liquidity could drop dramatically, and that scares everyone," he told a panel at the World Economic Forum in Davos.
"If everybody is moving together, we don't have any liquidity at all. We have to be ready to act very fast," he said.
Recipe for trouble
Mr Zhu said the worry was that policymakers still did not understand the complex interactions in the global financial system, where vast sums of money can move across borders at lightning speed.
What the IMF had observed was that market correlations were near a historic peak, with aligned positions in the US equity markets four times higher than the average since 1932. This was a recipe for trouble when the Fed was tightening.
"When rates go up, market valuations have to adjust," he said.
Harvard professor Kenneth Rogoff said the fear in the markets stemmed from a dawning realisation that the Chinese authorities were not magicians after all, and that this time the Fed might stand back and let the blood-letting run its course.
"What is driving this is that the central banks are not coming to the rescue," he said, speaking at a Fox Business event.
Rates are already zero or below in Europe and Japan, and quantitative easing is largely exhausted, leaving it unclear what they could do next if the situation deteriorates.
Professor Rogoff said these anxieties were causing companies to hold back investment, entrenching a slow-growth malaise. The Fed may be forced to halt its tightening cycle and even cut rates again if the wild sell-off continues for much longer.
Central banks are not coming to the rescueKen Rogoff
He said events of the past year had demolished the myth that China is a "perpetual growth machine".
It was the last domino of the "debt supercycle" to fall, and the scale of it was the haunting spectre now hanging over the global economy.